my money
At a Glance
Helping You Understand Financial Planning and Investments
How your group plan can help you be a savvy investor
Remain calm and stay the course:
Two of the common themes financial
planners focus on when discussing
market volatility with their clients.
For many investors, nothing seems
worse than a drop in the market
staring you directly in the face in the
form of your latest investment
statement.
While weathering the storm of a
market downturn, it’s important to
remember that there are measures
you can take to help speed your
recovery time and help ensure your
investments grow to their full potential.
pay lower fees in a group plan
because you are typically buying
“wholesale” versus “retail” and
receive the bargaining power of
group plan members as a whole
making contributions via payroll
deduction,
versus
individual
investors investing on their own
with deductions from their bank
account.
Even if it’s just a difference of one
percent, lower fees can have a huge
impact on your savings over time.
For example, let’s say you invest
$4,000 in a plan each year that has
an annual growth rate of 5.75%, and
an annual fee of 1.5%. At the end of
30 years, you would have accumulated
$240,176.
But if the same plan had an annual
fee of just a half-percent more (i.e.
2.0% instead of 1.5%), it would
only be worth $218,814 – a difference
of $21,362 over the same 30-year
span. And a 1% difference (1% versus
2%) adds an extra $45,158 to your
nest egg! In other words, the lower
the fee, the more money that stays in
your account, working for you.
The group plan advantage
One of the key advantages of investing
in a group plan is that you often pay
lower fees than are traditionally
available to an individual investor.
This can have a significant impact
on your investment portfolio,
especially over the long term.
While all investment funds have
fees, which cover such expenses as
administrative charges, legal costs,
and the price of professional
investment management, you often
Years of
contribution
Total
contributions to
your plan account
3%
2.5%
2%
1.5%
1%
10 years
$40,000
$46,132
$47,512
$48,936
$50,406
$51,923
20 years
$80,000
$105,634
$112,026
$118,870
$126,201
$134,054
30 years
$120,000
$182,379
$199,625
$218,814
$240,176
$263,972
MANAGEMENT FEE
$45,158
Note: Did you know that the typical Canadian retail balanced fund has fees of approximately 2.75%*?
How does this compare to the balanced fund(s) in your group plan?
* Source: Morningstar® Canada.
Group retirement services are provided by Sun Life Assurance Company of Canada, a member of
the Sun Life Financial group of companies. © 2008, Sun Life Financial. All rights reserved.
Continued
(cont’d)
Because you’re buying wholesale, group plans don’t charge front end or
back end loads, which is why they’re a better bet if you’re looking to speed
up your recovery from a bear market. Lower fees really do make a difference
over time.
For example, let’s say you had $1,000.00 invested in equities, which
dropped to $750.00 due to market turbulence. It would take less time to
recover the loss through your group plan, compared to a personal RRSP
that you may have at a bank, where the fees for a typical balanced fund
would be higher.
This example is provided for general illustrative purposes only, assuming a 5.75% annualized rate of
return. Fees in this example are 1.5% and 2.75% for group and individual balanced funds respectively,
with no additional contributions made during the recovery period. And if the fees in your group plan
are even lower, than the recovery would be that much faster!
Disclosure is a good thing!
Your group plan statement fully discloses the fees you’re paying within
the plan. This helps you to be a more informed investor. And, since fees
are always applicable when it comes to investing, you can use this information to ask your retail institution about all of the fees that may be
reflected in your retail investments. If the fees are not disclosed on your
retail statement, they would be reflected in the rate of return that may
be applied to your investments i.e. higher fees translate into a lower rate
of return. Asking questions will help you to decide if you should take
full advantage of the lower fees in your group plan by consolidating
your investments and maximizing your investment returns when the
market rebounds.
i
If you have a general question or suggestion about this newsletter, please send an e-mail to can_pencontrol@sunlife.com or write to my money
At a Glance Newsletter, Group Retirement Services Marketing, Sun Life Financial, 225 King Street West, Toronto, ON M5V 3C5.
This bulletin has been created exclusively for you. It addresses issues to help you with your financial planning and investments, and cannot be
reproduced in whole or in part without the express permission of Sun Life Financial.
11/08-st-eo